The 30-share index, which lost nearly 52 points in the previous session, resumed higher at 32,341.05 and advanced to 32,354.77 in early trade.

But selling pressure emerged as participants digested the Sebi order clamping down on shell companies, which dragged the gauge below the 32,000-mark briefly to a low of 31,915.20.

The index finally settled at 32,014.19, a loss of 259.48 points, or 0.80 per cent.

Following weakness in stocks, the market capitalisation of BSE-listed companies fell by Rs 1,43,634.86 crore to Rs 1,31,84,912 crore.

The benchmark indices fell as Sebi cracked down on 331 suspected shell companies listed on exchanges.

Investors were spooked after the markets watchdog last night directed bourses to initiate action against the suspected shell companies.

These scrips will not be available for trading this month.

"Sebi order has taken industry and investors by surprise. This has led to erosion of serious wealth and if some of the companies are found to be not shell companies, this order shall still be a death knell on their perception and valuation," said Rajesh Narain Gupta, managing partner, SNG and Partners.

Dr Reddy's was the worst performer in the 30-share pack, losing 4.91 per cent. Other laggards included SBI, ITC, ICICI Bank and NTPC.

Among the sectoral indices, realty was the hardest hit, down 4.53 per cent, followed by oil and gas (2.16 per cent).

On the BSE, 2,020 stocks declined and 566 advanced while 121 remained unchanged.